Swan's balancing act won't add up
May 13, 2010



The budget focus on beating mythical surplus schedules hides an inconvenient truth.

It was a strange budget speech on Tuesday night. It was all about the financial year of 2012-13 - three years away. That year is a happy year, when the budget will balance for the first time in five years and the Australian government will stop running up new debt.

That year there will be a new tax on the mining industry, and the year after there will be an increase in the superannuation guarantee of 0.25 per cent.
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All very interesting.

But this budget is about the financial year that starts on July 1. The budget speech is a request for Parliament to appropriate money to various expenditures over the next 12 months. The Treasurer has to explain where all the money is going and where it will come from. And if the government spends more than it raises, it should explain how it will finance the difference.

So you may not have picked it up. For the record, government spending will exceed revenue in the next financial year - a deficit of $40 billion - which will be financed by new debt. In dollar terms, it is the second-highest deficit on record, and in percentage terms about the level we had in the recession of 1983 and the recession of 1992. Except we're not in recession. We are in the middle of the greatest mining boom since the gold rush.

The decision to focus on the budget that comes after the one after this one worked a treat. Watching Kerry O'Brien interview Wayne Swan on The 7.30 Report, I was struck by how he immediately focused on the 2013 outcome. We were out of the present. It was like we had gone forward in a time machine. Swan even made the absurd claim that the government will balance the budget three years ahead of schedule.

What schedule would that be? That would be the schedule in last year's budget, which dumped the schedule of the year before. In 2008, we were going to have surplus as far as the eye could see. In 2009, we were going to have deficit as far as the eye could see. The 2008 forecast was complacent. The 2009 forecast was a counter-reaction. Neither represented reality. You cannot beat something that was never going to occur.

And since the 2008 forecast was out of date after six months and the 2009 forecast went the same way, logic suggests we should be careful talking about outcomes for 2013.

Instead of this absurd claim about beating mythical schedules, the best thing to say would be: "It was unfortunate we were wrong in 2008. But it was fortunate we were wrong in 2009. While we may be wrong again, we're now somewhere in the middle."

So let us forget the distracting discussion of what will not happen in 2012-13 and ask some real questions about what is happening now. Should an economy that successfully avoided the financial contagion that came out of America in 2008, and which is undergoing a mining boom of unprecedented proportions, and after six interest rate rises in a row be running a budget deficit of 3 per cent of GDP?

Let me ask an even easier question: Should such a government be rolling out "stimulus" spending - paying over-inflated prices to build assembly halls in schools that did not ask for them and will have to generate ways to use them?

Should a government, in the middle of a mining boom, need to increase the rate of taxation given that it is already raking in record tax from the mining sector?

It was laughable to hear the Treasurer talking before the budget about how he would not engage in an election-year spendathon. That was because he did the mother of all spendathons last year allocating new spending for that year, and this, and the one after - spending that he has no intention of paring back because the government thinks that school halls in marginal electorates will be electorally useful.

The government allocated $100 billion of new discretionary spending over four years from 2008. Only the Whitlam government compares. But in this strange universe in which future budgets are announced rather than present ones, past events are somehow erased.

And the luckiest break in the past year was the collapse of the Copenhagen climate talks - because Labor's medium-term strategy is to ride the mining boom for all it is worth. Whatever it says in overseas environmental forums, back here it proposes to exploit rising prices for carbon energy and carbon intensive mining for every dollar it can extract. The Treasury forecasts record prices in 2011 and 10 years of boom after that. It estimates Australia's terms of trade will be about 60 per cent higher than the long-term average.

The government's environment policy would have undermined this industry and its tax policy could well do the same. Let us hope it can be saved from itself a second time.

Peter Costello was federal treasurer from 1996 to 2007.

Source: The Age
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Mooeevin foerweerd three years apparently, sigh~!
Why wont Swan discuss this budget, preferring to discuss one three years ahead of itself?
Was this intentional, or has he had a stroke?

Darwin wrote on Aug 10^th, 2010 at 8:25pm:

Darwin wrote on Aug 10^th, 2010 at 7:48pm:



The current Government debt is similar to someone on average wages ($65K) borrowing somethjing like $56K. That's being in debt to the tune of 86 % of your income. Doesn't sound like a fleabite to me.
Next year, the government debt will exceed goivernment income.  Darwin, what do you think that means?

mellie wrote on Aug 10^th, 2010 at 8:34pm:



Is that your opinion that Costello is Australia greatest ever treasurer ever seen. If he is Australia's greatest Treasurer give us a link were it says so.

Was Costello ever voted the World's best Treasurer by his peers if he was then you can say he is ONE OF AUSTRALIA BEST EVER TREASURER Australia ever seen.

The only Treasurer that I know that was voted by his peers as the worlds greatest treasurer was Keating.

http://www.bookrags.com/biography/paul-john-keating/


Keating, with the reputation as a political killer with a sharp tongue, made his mark as federal treasurer. Labor in office embraced the free markets philosophy it had earlier opposed and, instead of reversing moves to liberalize the financial system, it advanced the process of financial de-regulation that had begun under the Liberal coalition government. By the end of his first year as treasurer Keating had overseen a move to float the Australian dollar and remove virtually all exchange controls and was pushing to allow foreign banks to operate in Australia. The following year the influential magazine Euromoney voted Keating its finance minister of the year at the 1984 annual International Monetary Fund/World Bank meeting in Washington.